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The fiasco with Hong Kong’s penny stocks had been spreading
like wildfire. How did it happen like this?
Let’s imagine I’m one of the professional traders whose
magic flute has many penny stock investors astray, down the abyss to their
personal misfortune.
But don’t blame me. I’m no different from the unsupervised
child who finds the cookie jar open. I do what every kid does -- I gouge on
cookies till I’m stuffed.
I work in a securities firm you see, but my boss is no
ordinary broker. He’s a chong kar (莊家) – market
maker. He “made” the stock price of the listed
companies he controlled.
The trade craft is derived from ancient wisdom. First, make
up some good news about a company. Then, the men on the right side of the room
call in buy orders, while those on the left side sell them the stock, and vice
versa.
The price goes up and up, until the mom-and-pop investors
take notice and pile in. Next announce a massive rights issue to scare off the
little shareholders, so shares can be picked…

Short-sellers are now a regular fixture of the stock market, yet most
investors still do not have enough information to get a handle on what they are
doing.
But as prominent investor and writer Jim Rogers observed in his book
Street Smart, short-sellers have a better record at getting their bets right
compared with most traders because they can lose big time if they get it wrong.
So it would be useful for the rest of us to get a fairly accurate
picture of how widespread their activity is in order to gauge the level of
bearish sentiment surrounding a stock or the market in general, so that we can
better make an informed decision on our investments.
Short-sellers borrow scrip in the securities lending market to sell in
the hope of making a profit by buying it back cheaper later.
But while they may play a role in shining an unwelcome spotlight on
under-performing firms, some of them get plenty of brickbats for the hardball
tactics they use when they ambush a company after building a big…

Two weeks ago, a sudden plunge in a string of penny stocks
on the Hong Kong stock exchange wiped out US$6.1 billion in market value in two
days and left some companies down 90 per cent.
Forty of those companies turned out to be part of a web of
50 firms linked by cross-holdings, overlapping directorships and questionable
corporate transactions that former HKEX director-turned-independent investor
and stock commentator David Webb had called out in a May report titled The
Enigma Network: 50 stocks not to own.
Research from corporate intelligence portal Handshakes, an
artificial intelligence platform run by Singapore startup DC Frontiers, now
indicates that key individuals from the Enigma network are linked to a wider
web of Hong Kong small caps.
Most of these companies share characteristics of the Enigma
firms, such as overlapping directorships and similar histories of regulatory,
enforcement or disciplinary reprimands from authorities, and could potentially
trigger another rout, say a…

Mainland Chinese investors were the biggest losers when
dozens of Hong Kong’s penny stocks plunged, some losing as much as 90 per cent
of their value, on June 27.
Three theories stand out to explain the crash.
First a little premble: 90 per cent of these penny stocks
belong to an Enigma Network of 50 interconnected issues, mapped out in May by
gadfly investor David Webb.
A professional trader, let’s call him Fun Gor, controls the
network. He’s been having financial troubles, ever since trading in Lerado
Financial Group Co. was suspended on June 6 pending a regulatory investigation.
The first and the most colourful theory says the crash was
an ambush by enemies, of which Fun Gor has no shortage. There are the TV
starlets who lost their shirts on his investment tips, his fellow traders whose
sweethearts had made the wrong punt, and regulatory officials who were forced
into a corner to conduct an industry-wide crackdown because of his
recklessness. Even Webb himself had his 2.3 per cent…